"The Crash" has been called... end of 2017.

That's not even close to what I am trying to say.

 

It was certainly forseen by the smart money, it always is.

 

And?

 

So what are these unforseen economic events?

 

That what my original point. How can you predict an unforeseen economic event will occur in just over 2 years from now. You can't.

How about you answer this then. The author has predicted the Australian Property Bubble will crash in late 2017. Do you think that is a valid prediction? Do you think it is an accurate prediction?

 

The prediction is valid, but the timing is impossible to predict.
I personally think it's coming earlier but I also know these things can take time to play out.
Each way bet near or far. I'm leaning towards near.

 

So far I'm half way through the book,

The biggest issue referenced continually throughout, is our banks leveraged debt. In 08 we were extremely high, he mentions instead of taking note of what happened to America and around the world, Australia was thrown a lifeline from China's growth with our mining. Then our banks leveraged even further instead, only recently apra putting on the brakes, but mentions it's way to late. 2 of the banks are leveraged as much as the lehmans brothers which folded. Now the hard part is, how do you put a limit on what to much leveraging or risk is?
His point, and it is valid, if Lehman can go bust, why can't one of our banks do the same?
So our banks are currently our weakest link, the unforeseen economic even is what will send Australia to bust, is his reference.
And I'm upto China, China is what can be our economic bust...he thinks. As China doesn't need our mining as it did, and mining was all we really have.
Let me read more and follow up.

 

Let me know which 2 banks they are so I can put a cross next to them.

 

Check out the graph on page 3. Westpac is the weekest

 

But that's just cause and effect. Lehman brothers did not collapse because of leveraging. They collapsed because of the subprime mortgage crisis. Question is, why are they assuming a subprime mortgage crisis here large enough to damage the banks.

And from a comment on reddit about this topic

''Lehman brothers had a tier1 capital adequacy ratio of 5.42% in 2007 and a 6.68% ratio in 2006. Currently ANZ has ratio of 8.8%, Commonwealth has 10%, NAB has 10.8%.''

 

Good question. APRA saw an issue and has done something to address it. Whether they have done enough remains to be seen. Something to keep in mind is that in a recession, only a relatively small percentage or mortgage holders will default. Someone would need to estimate how many would need to default before the government could not bail out the bank. I find this an unlikely scenario.

That is a fair point. One of our banks could go bust. But just because Lehman went bust doesn't mean one of ours will.

 

The IMF recently published a report on Australian Housing based on information available up til Aug 2015. The first 20 pages are fairly succinct - they also highlight info on bank stress testing & stability ratios.

Almost all of the following us a cut & paste of the salient points......

A few conclusions they draw about housing -

• Price-to-income ratios have risen across all measures in Australia and are now near historic highs. However, international comparisons of price-to-income ratios suggest that Australia is broadly in line with comparator countries,
• Lower nominal and real interest rates and financial liberalization are key contributors to the strong increases in house prices over the past two decades. The various house price modeling approaches indicate that house prices are moderately stronger (in the range of 4-19 percent) than economic fundamentals would suggest.
• High prices reflect low supply
• housing supply does indeed seem to have grown significantly slower than demand, reducing (but not eliminating) concerns about overvaluation.

One differentiator that I've mentioned many times, but never seen charted is the high urbanisation level in Oz.

This shows that 40% of us live in the 2 largest cities & 80% of us live in an urban area - only Chile & NZ & Canada have a similarly high proportion of urban dwellers. In comparison USA & Germany have <5% living in the 2 largest cities and less than 30% in any urban area.


And their thoughts on the Australian banking system.....

• There are no signs of weakening lending standards or speculation
• Mortgage lending has grown strongly, but lending standards seem largely to have been maintained
• Asset quality remains strong
• Mortgage buffers have increased
• Debt is concentrated among high-income households.
• There is no sign of a generalized credit boom and estimates of credit gaps are small.
• While lending standards overall seem not to have loosened, the growing share of investor and interest only loans focused on the highly-buoyant Sydney market, is a pocket of concern.
• Households Have Large Buffers, & household wealth vastly exceed debt.
• With low interest rates, household are building buffers, and the savings ratio remains high.
• Even if houses are overvalued, it doesn’t matter as banks can withstand a big fall

APRA recently concluded a stress test of the Australian banking system, focused on housing. One scenario was a housing market decline, prompted by a sharp slowdown in China, where Australian GDP growth declines to -4 percent, unemployment increases to over 13 percent and house prices fall by a cumulative 40 percent. In such as extreme scenario they concluded that... the banking sector would remain solvent, but unlikely to function well.


It would interesting to see if the author can counter APRA, RBA, RBNZ & IMF conclusions.

 

Controversy creates interest creates SALES ....

Nothing more , nothing less .It's in their business plan ......

Cliff

 

Remember that property crashes are different to stock market crashes, they are much slower and take years to evolve and recover. So in the event of downturns don't be too early to rush in and buy "bargains" while the market is still dropping.

 

That's not really the definition of a crash is it. A cycle; yes.

 

Lehman Brothers collpased because of Financial Engineeering, weve already established that.
Keep up.

It's as much the definition of a crash as it is of a cycle.
It all depends on the dissipation of wealth.

As far as unforseen economic events are concerned. the Yanks ( it's all about me ) define it more in personal terms as "condemnation or destruction of your home by natural or man made disasters or an act of war or terrorism"

The Japs( tend to make it less personal) define it as "natural disasters, outbreaks of infectious diseases, armed conflicts,, terrorism, political instability, currency crises.

 

Very interesting @keithj, thanks for posting. It certainly put some of the claims into perspective.

I don't he will try. He will just go on hogging the headlines to sell books.

 

The "crashes" experienced in many property markets in the GFC played out like this... falling prices for years. Those that thought it was a "cycle" and bought after prices only dropped 10-20% were caught out by something they had never experienced before. I was one of them.. bought after a 30% drop only to see it drop a further 20% from the peak (so 50% down). Top to bottom took 6 years in Spain, 3-5 yrs in Ireland & US. Crashes are slow, don't jump in too early.

 

Thanks Casteller. That's really useful info. Did you buy in the US? How is the value now?

It would be interesting too see how long Sydney took to bottom out after the last boom. More than 3 years?

 

My personal thoughts are 6 years .

2003 to 2009 ( GFC ) . I'm in no rush to buy now . After the GFC the market was dead and there were bargains in good suburbs .

Cliff